On 26 November 2020, the Corporate Insolvency and Governance Act 2020 (Coronavirus) (Suspension of Liability for Wrongful Trading and Extension of the Relevant Period) Regulations 2020 came into force.
Further suspension of liability for wrongful trading
The Regulations suspend liability for directors for wrongful trading for a further period beginning 26 November 2020 and ending 30 April 2021.
Under wrongful trading, a director incurs personal liability if he knew or ought to have concluded at some point before liquidation or administration, there was no reasonable prospect that the company would avoid going into insolvent liquidation or insolvent administration.
Directors should note that they are still bound by their statutory duties under the Companies Act 2006. Directors are required to promote the success of the company for the benefit of its members as a whole, and if insolvency is threatened, to protect the interests of creditors.
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In particular, directors should be questioning whether taking on new debt, including government schemes such as the Coronavirus Business Interruption Loan Scheme and the Covid-19 Corporate Financing Facility, will benefit the company in the long-term. Directors must ensure that they have up to date financial information at all times. Regular board meetings with detailed minutes should help to evidence that creditors’ interests have been considered.
Directors’ disqualification rules relating to a director or former director of an insolvent company engaging in conduct which makes him ‘unfit’ for the role continues to apply, as well as other legal provisions, such as transactions at undervalue, preferences and transactions defrauding creditors.
General meetings of companies
The relaxation of requirements for general meetings to be held in person are further extended to 30 March 2021.
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